Dirección Estratégica » Edition 53

The Supervisor as the Manager of Performance and Organizational Commitment in Multinational Corporations

Ceci — Wed, 05 Aug 2015 18:16:01 +0000

By: Dr. Gerardo Padín
Inter American University of Puerto Rico

Multinational corporations (MNCs) transcend borders and operate in countries where there is often a notable cultural diversity between the supervisors (expatriates) and the employees (local).

Sometimes the differences are quite evident and they force foreign managers to pursue strategies that will enable companies to adapt, transform or redefine their human resources policies and practices in order to attain a greater sustainable competitive advantage. The researcher Greene (2011) writes: “Organizations wishing to effectively attract, retain, motivate and satisfy high quality diverse workforce must recognize cultural differences, respect them and reconcile them”.

One of the strategies that MNCs use to deal with these differences, maintain control and establish general guidelines that focus on the organizational actions of the subsidiaries is the human resources policies and practices and the leadership of the international supervisors. Research carried out in recent years address these issues. For example, Kubo (2013) analyzed the cultural adjustment of 37 Japanese executives at 21 subsidiaries in different sectors in Brazil, and Hernández (2010) conducted a critical and comparative analysis of cross-cultural training that four companies operating in Puerto Rico offer the employees and families they send abroad. In addition, Hernández defined the main function of the human resources management of each organization and identified cross-cultural training needs of expatriates and their families, so that they can succeed in international assignments.

The processes associated with the parent company and its subsidiaries are extremely complex. Situations that are different from those projected by the management of the MNC frequently occur. Therefore, from the point of view of senior management, it is imperative to go beyond strategic or financial considerations and corroborate the human resources problems that emerge in these processes. For example, various studies indicate that more than a third of the mergers fail within five years and that the majority of these failures are due to factors related to human resources. The main problem has to do with two situations that trigger clashes between the two companies (the parent and local). One is the replacement of the managers of the subsidiary by those from the parent company who come into contact with the personnel of the subsidiary. The other is the strategic decision of the parent company related to the design of the human resources system that will be implemented in the subsidiary or the degree of similarity or difference between the human resources system of the parent company and that of the subsidiary, as a result of the implementation of human resources practices and policies used by the expatriates.

It is very important for top management of the MNCs to understand how satisfaction with the implementation of the human resources policies and practices and the satisfaction with the leadership of the supervisors are related to the organizational commitment of the supervised employees. This question addresses two important elements of organizational commitment, which should be considered separately. The first is the implementation of the human resources policies and practices on the part of the supervisors, and the second is their leadership.

Recently, a study done on a MNC in Puerto Rico produced the following results and conclusions:

The satisfaction felt by the supervised employees with the manner in which supervisors implement human resources policies and practices has a relationship with organizational commitment. This relationship has a positive correlation coefficient between the two variables and is statistically significant (r=0.42). It is important to note that all the dimensions of organizational commitment established by Meyer and Allen (1997; continuance, normative and affective commitments) show the same statistically significant relationship result (r=0.27, 0.39 and 0.37).

These results are very important because if management can increase satisfaction with human resources policies and practices, the organizational commitment will grow. The same thing occurs with each of the dimensions. These findings confirm the results of the research conducted by Hutchinson and Purcell (2003), who conclude that there is a symbiotic relationship between the supervisors’ application of the human resources policies and practices and the set of attitudes of the employees, such as job satisfaction and organizational commitment. Therefore, it is advisable to align human resource management with the organizational strategy (strategic adjustment) and to articulate the different practices of human resources management, such as opportunities for career development or the training and evaluation in the organization (internal adjustment), which are important factors in the relationship between human resource management and organizational performance. This alignment has an impact on the organizational commitment of the employees, reflected in their having more frequent attitudes that have been empirically linked to better job performance, lower absenteeism, less turnover and increased employee participation and involvement.

In regard to the second element, a positive and statistically significant correlation coefficient between the two variables (r=0.41) was found in the relation between the satisfaction of the supervised employees with the supervisor’s leadership and the degree of organizational commitment. The affective commitment, in which a moderate and significant coefficient (r=0.30) was obtained, was emphasized in the analysis by dimensions. This affective commitment is related to the emotional components of employees in their organization that instill a sense of pride or belonging to the organization. Meyer and Allen (1997) define affective commitment as “positive feelings of identification with, attachment to and involvement in the work organization.” Conceptually, in this dimension of the commitment, employees exhibit three characteristics: first, they are convinced and agree with the goals and values of the organization; secondly, they are eager and exert their effort for the benefit of the organization; and thirdly, they feel an obligation to remain as members of the organization.

In summary, the results of this study show the importance of the employee’s perception of both the human resources policies and practices and the supervisor’s leadership. In both cases, the results show a positive and statistically significant correlation. In other words, the greater the satisfaction with these variables (human resources policies and practices and leadership) is, the greater the organizational commitment of the supervised employees and their individual, group and organizational performance are.

Another variable examined in the study is whether there is any difference in the organizational commitment among groups of employees led by expatriate and local supervisors. It dealt with verifying if there are differences between the average level of organizational commitment of the supervised employees led by expatriate or local supervisors, and whether being supervised by an expatriate is associated with satisfaction in the implementation of the human resources policies and practices and if this satisfaction, in turn, has a relationship with the organizational commitment of the supervised employees. In other words, there was interest in knowing the relationship of the employee groups led by expatriate supervisors and the satisfaction of the supervised employees with the implementation of the human resources policies and practices and their organizational commitment.

The results from the employee groups led by expatriate supervisors indicate that these cannot be considered decisive in the organizational commitment of the supervised employees because there are no significant differences. As noted, the inclusion of the interaction between the variable of the employee groups led by expatriate supervisors and the variable that predicts satisfaction with the implementation of the human resources policies and practices was not associated with an increase of 22% in the organizational commitment among the groups. The significance of these results is that the supervisor, whether expatriate or local, has no influence over the increase or decrease of the organizational commitment of their supervised employees, unlike the other factors (see Table I). In regard to the relationship of the independent variable (employee groups led by expatriate supervisors) and the organizational commitment of the supervised employees, there were no specific measurements, outside the investigations that have been referred to, of the performance of expatriates in the multinational companies. For this reason, we have no comparison framework with these results.

Two factors may influence the relationship of the employee groups led by expatriate supervisors and their effect on organizational commitment: first, the concept of cultural intelligence on the part of the expatriates; and secondly, the amount of time the expatriate is assigned to the host country.

Cultural intelligence is the seemingly natural capacity of a foreigner to interpret the unfamiliar and ambiguous gestures of people from another country (DeCieri, 2008). In this sense, the success of expatriation depends to some extent on the cultural intelligence of the individual. Expatriates with a high level of cultural intelligence should be able to adapt well to the culture of the host country, knowing what characteristics of the local cultural context will serve them and their family. From the research related to cultural intelligence, it may be concluded that it is important for human resources managers to design and implement initiatives for the selection of employees, as well as for the development and performance management to improve cultural intelligence.

In regard to the length of time of expatriation, the expatriates had been at their jobs between 5 and 10 years at the moment of the investigation. This is a determining factor for these results, because the longer supervisors have been in another country, the better they understand its culture. Time gives the expatriate the tools needed to exercise effective leadership and to deal with the problems of cultural differences?

References

De Cieri, H.L. (2007). “Transnational firms and cultural diversity”, en Peter Boxall, John Purcell y Patrick Wright (comps.), The Oxford Handbook of Human Resource Management, Oxford, Oxford University Press, pp. 509-529.

Greene, R. J. (2011). Rewarding Performance: Guiding Principles, Custom Strategies. New York: Routledge.

Hernández, M. G. (2010). “¿Son los adiestramientos transculturales indicadores del éxito o fracaso para la adaptación de los expatriados?” (1487541). ProQuest Dissertations and Theses Global. (822495800), en search.proquest.com/docview/822495800?accountid=44049.

Hutchinson, S. y J. Purcell (2006). “Satisfaction with HR practices and commitment to the organisation: Why one size does not fit all”, Human Resource Management Journal, vol. 15, núm. 4, pp. 9-29, DOI: 10.1111/j.1748-8583.2005.tb00293.

Kubo, E. K. d. M. (2013). “Ajustamento Intercultural de Executivos Japoneses Expatriados No Brasil: Um Estudo Empírico/Intercultural”. RAE, 53(3), 243-255, en search.proquest.com/docview/1371294948?accountid=44049.

The Connection Between Employee Commitment and Organizational Communication Management

Ceci — Wed, 05 Aug 2015 17:54:42 +0000

By: Dra. Mariana Barresi,
Universidad Austral de Buenos Aires

How can you develop employee commitment to an organization? How do you get employees to go to bat for the organization, to feel a sense of oneness with the organizational goals or, what appears to be the aspiration of any business leader, to feel a moral obligation to go the extra mile on the job?

In reality, commitment and retention depend on many factors. Can effective communication management contribute to these goals?

Employee commitment not only increases the likelihood that employees will stay with the organization, but it also brings about a number of advantages for both the organization and the people who work in it. The benefits can be grouped into four categories: 1) increased retention and, at the same time, a negative relationship with employee turnover; 2) greater willingness to pursue the organization’s goals; 3) improved performance that, in turn, can result in greater presenteeism, in better execution of the assigned tasks and in extra effort exerted by employees beyond what is expected of them; and finally 4) some studies also revealed the link between commitment and employee well-being in terms of lower levels of stress and burnout at work.

Organizational commitment can be defined as the employee’s emotional attachment to the organization. According to Meyer & Allen, this bond experienced by employees during their work relationship has three distinctive components, which the authors identify as affective, continuance and normative commitments. Affective commitment refers to the employee’s feelings of identification and involvement with the organization, which is expressed in the desire to stay in it, and to work harder and more efficiently. Secondly, the continuance component focuses on a link of an instrumental nature based on the need to stay, taking into account the costs involved in leaving the organization (i.e. losing seniority, benefits, autonomy, among others) or the lack of job alternatives. Thirdly, normative commitment reflects the employee’s sense of obligation to stay, based on a moral debt that the employee feels toward the organization.

Organizational commitment as an indicator of life in the workplace is a matter of great interest to those who run businesses, particularly in times of economic recession and uncertainty. The strong interest in the topic is due mainly to the strategic and competitive importance of human resources, because, in order to prosper, organizations increasingly rely on motivated and efficient employees, who accompany them in both the good times and the bad, who go to work and devote all their energy, effort and time, who protect their assets and contribute to the attainment of organizational goals (Meyer & Allen, 1997).

At the same time, globalization and the increasing interconnectedness resulting from technological developments are transforming the work world. This compels us to consider more democratic and inclusive approaches to managing people that are based more on commitment than on “command and control.” Therefore, if organizational commitment is conceived as a psychological relationship between an individual and the organization for which he/she works, it can be expected that communication may be viewed as one of the mechanisms to strengthen this relationship and to integrate employees into the organization.

Various studies show that the value of communication can be found in its ability to unite and connect what otherwise would be separate. To illustrate, the classic 2004 Communication Return on Investment (ROI) study by the international consulting firm Watson Wyatt suggests that effective communication can help employees feel connected to the organization and, in turn, quickly connect employees to the ever-evolving challenges of the business. In addition, it can connect new employees to the organizational culture and to the managers and employees in times of change. In turn, they found a correlation between effective communication, employee turnover and financial performance. In particular, the 2005 edition of this study, as well as the subsequent reports, seem to confirm these results.

A study conducted in Argentina analyzes the relationship between communication satisfaction and organizational commitment of the employees of two large multinational organizations in that country: Carrefour and DIA. This study identifies what types or modes of communication can better explain or predict employee commitment in a sample of 372 cases, in the DIA Maxi and Carrefour Express stores located in the metropolitan area of Buenos Aires (AMBA).

One of the merits of the study is that it uses a research model that integrates an adapted and translated version of the Communication Satisfaction Questionnaire (CSQ), developed by Downs and Hazen, and the components of affective and continuance organizational commitment, according to Meyer & Allen’s Three-Component Model of Commitment.¹

The CSQ has been used in a series of works that comprises more than 30 doctoral dissertations and Master’s theses as well as various specialized publications. It has also been translated into several languages –Chinese, Dutch, Thai, Finnish, Japanese, German, Pakistani, Spanish, etc.– and has been applied in different sectors and industries. The experience gained in the countries where the theme was analyzed indicates that there does not exist a series of principles or simple rules that can be applied universally to all situations. On the contrary, there can be variations in the level of employee satisfaction with communication depending on the conditions, such as the characteristics of the organization, its organizational culture, management style, sector or country.

Although, by practical intuition, both researchers and communication professionals assume that a positive perception of communication can contribute to organizational effectiveness, this phenomenon has not yet been adequately explored in the context of Latin America.

The main results of this study show that to influence the affective commitment of the employees, one of the resources available to managers is to improve the practices of formal communication.

DIA and Carrefour Argentina are among the seven largest businesses in the supermarket sector of the country, a sector that is dynamic, highly globalized and concentrated. Given their size, these chains are major generators of employment. In addition, they are typically characterized by the co-existence of different formats and sizes of stores or geographically dispersed units, with varying work schedules and uneven contact with the media, which makes it an interesting case for analysis. The originality and importance of the findings of other studies are based on the comparison between these two multinational organizations. The regression models suggest that in DIA the management of formal communication –communication that comes from senior executives and the heads of each department –seems to be the variable that most influences affective commitment. Meanwhile, in Carrefour the management of formal communication is the only variable that has a significant impact on affective commitment.

Implications for business managers

One of the major challenges for managers today is to convince their employees to contribute to achieving the objectives of the organization and to integrate them into their project. The evidence provided by research in this field indicates that the lack of commitment may reduce the effectiveness of the organization. Committed individuals are less likely to resign and, therefore, the organization does not incur the costs from a high turnover of employees. Also, as we have seen, employees with a strong affective commitment with the organization tend to give more than is expected of them and exhibit a greater sense of wellbeing. (Meyer & Allen, 1997). In this sense, the study has identified specific ways to develop affective commitment. The results, in line with the existing literature, have shown that it is precisely formal communication that exerts greater impact on affective commitment.

Among the various aspects associated with formal communication, the communication of senior management plays a key role. This is because one of the main tasks is to define and publicize the business vision, which in turn influences how people view the organization and what it represents (Downs & Adrian, 2004). This would be tantamount to saying that the sense of belonging to the organization is strongly influenced by the assessment of the employees with regard to the communication of senior management.

Another aspect closely related to formal communication is communication managed by communication professionals. Thus, the quality of the media evaluated by the perception of employees on the following points have an impact on affective commitment: 1) the usefulness of the magazine Dialogando, by DIA, and the television newscast Todos & Cada Uno, by Carrefour; 2) the written guidelines; 3) the productivity of the meetings; 4) the amount of information circulating in the organization; 5) the extent to which attitudes within the company toward communication are healthy. This would mean that employees may experience greater affective commitment if they obtain adequate information to perform their work through the formal means of the organization.

Finally, the climate of communication emphasizes the need to conceive of communication as a management tool by means of which organizational goals are disclosed and attained. Moreover, providing such strategic information increases the line of sight, i.e., that employees understand how their actions are connected and contribute to achieving business results (Gibson, Benson, Porath and Lawler III, 2007). This probably has to do with the management of communication, which involves a continuous process to develop commitment toward business strategies and to ensure that employees clearly understand how they can help achieve these strategies from their own work./p>

From the foregoing, the evidence suggests that managers should pay more attention to factors relating to the management of formal communication. Based on the study that was conducted, the results suggest that, to influence the affective commitment of employees, one of the resources available to managers is to improve the practices of formal communication.

Time for reflection

Is communication seen as an expense or as an investment in the organization that you direct? Is it considered part of the functions assumed by the CEO and the leaders of the organization? It is noteworthy that despite the growing appreciation of the practice of communication in all types of organizations, at present, budgets assigned to internal communication are significantly lower than the rest of the areas. Now that you have all the information, are you interested in using it to be a leader from a communication perspective??.

References

Barresi, M. (2014). La percepción de la satisfacción con la comunicación y sus implicancias en el compromiso organizacional en la Argentina. Un estudio de impacto en dos grandes organizaciones multinacionales: Carrefour y DIA (tesis doctoral). Universidad Austral, Buenos Aires.

Downs, C. W. y Hazen, M. D. (1977). A factor analytic study of communication satisfaction. Journal of Business Communication, 14(3), 63-74.

Meyer J. P. y Allen N. J. (1997). Commitment in the workplace. Theory, research and applications. Thousand Oaks, C.A.: Sage.

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¹ The translation of the test of the Three Components of Organizational Commitment of Arciniega & González (2006) was used in this study (work).

Investment Advisors

Ceci — Wed, 05 Aug 2015 17:37:47 +0000

By: Yolanda Espinosa
ITAM

The role of the investment advisor has gained considerable importance in Mexico in recent years. The total amount of assets under management has actually quadrupled in the last decade.

This amount stood at 113 billion pesos at the end of 2013¹, distributed in more than 4,281 contracts with various institutions of the financial system on behalf of clients, who may be individuals, private corporations and pension funds, among others.

Although they are not intermediaries of the stock market, investment advisors are of such importance to the Mexican financial system that the National Banking and Securities Commission (CNBV, acronym in Spanish) recently incorporated them as a monitored sector.

As of January 2015, investment advisors are required to be registered with the CNBV, an important step in providing certainty and greater transparency to the market. Both individuals and corporations must meet certain requirements and provide information proving their honesty as well as a manual of conduct with standards and policies to resolve conflicts of interest, operational, financial and administrative information related to the provision of its services, certification before a self-regulatory body, and other relevant factors to exercise their advisory functions.

Investment advisers are individuals and corporations that on a regular basis provide professional portfolio management services, for which investment decisions are taken on behalf of and at the expense of third parties, investment advice on securities are offered, analysis provided and personalized investment recommendations are made for each client.

Unlike a representative who serves the public on behalf of a financial institution, investment advisors establish a link and receive direct payment from the investor in exchange for their services. Securities transactions ordered by the advisor are documented in the name of the client, who must have an account or brokerage contract with an intermediary authorized to perform operations on the Mexican Stock Exchange (BMV) and provide the advisor a mandate that empowers him/her to give instructions in their name, or to authorize him/her in the contracts concluded by the client with the intermediaries.

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^1> Mexican Association of Independent Investment Advisors A. C. The latest figure was released at the end of 2013, with assets under management totaling more than 113. 2 billion pesos.

The analysis that a client should conduct to choose and hire the services of an investment advisor is not limited to observing the historical returns that the advisor has generated from portfolios. The investor must primarily assess the transparency of the information provided by the investment advisor, paying attention to the scheme of remuneration and fees charged.

Investment advisors have various compensation schemes, although they generally charge a percentage of the value of the assets under management, AUM, for their services. Other common forms of compensation are fixed fees, hourly rates and commissions on securities traded under their advisory.

In addition, it is wise to check the following items:

Experience and technical knowledge in the field of investments

Certifications

Authorization by the CNBV

Major products and strategies

Main services

Sanctions and demands

The new regulation, along with the increase in information of the investment advisors and public statistics on this figure –nonexistent today– can help to reduce the information asymmetry and mitigate the agency problems that exist in this sector, as happens in many other contractual relationships. In this particular market, the client (owner of the assets) is the principal and the investment advisor is the agent.

The agency problems in this market are due to the client and the investment advisor having different interests, incentives, horizons, skills and information sets. In addition, the client has little capacity to monitor the advisor. Among the agency problems mentioned above, the two main ones are

Adverse selection. Adverse selection occurs when the client is unable to verify the competencies of the investment advisor. The advisor has more information than the client.

Moral hazard. Moral hazard occurs when the client cannot monitor the actions of the hired investment advisor.

Usually, there are several layers of intermediation between the investment advisor and the client, each with the potential to add conflicts of interest and commissions to the detriment of the interests of the client. To minimize agency problems and maximize shareholder value, the advisor can minimize the layers of intermediation and provide transparent information on potential conflicts of interest. Also, clients and investment advisors may enter into contracts or establish mechanisms to ensure that 1) the best advisors are willing to participate, and that 2) they are provided the appropriate incentives to work.

The best explicit contracts to mitigate agency problems are those that are based on results and that impose certain restrictions on investments –a way of defining the investment risk and universe– in accordance with the profile of each client. To some extent, the new regulation already addresses this last point. With the results-based contracts, the client and the advisor share the proceeds that are obtained. In a contract of this type, a fixed monthly or quarterly rate could be established and an additional bonus if the advisor reaches the goal, such as for example, a better performance than the benchmark index (setting an appropriate benchmark is very important and deserves further study). Another contract is that of relative performance, in which advisors are rewarded if their performance is superior to that of their competitors. With these schemes, if the investment advisor creates value for the client, that additional value is divided between the two in a kind of bargaining game.

In the particular case of clients who are individuals, Andrew Ang² suggests that the best payment scheme for the advisor is a flat fee or an hourly rate. This is because the relationships between the advisor and the individual have several dimensions (at a level that is not usually achieved with a financial intermediary) and the advisor provides a variety of services. When agents must fulfill several tasks or it is not possible to quantify them, the best contract is that of a fixed salary with the portion of variable compensation either minimal or non-existent, because to encourage them in one respect can demotivate them from performing other functions. An example of this is when clients need advisors who accompany them, listen and guide them on various topics that are not directly related to their investments.

In this sector, implicit contracts are as important as explicit ones in virtue of the fact that the reputation of an advisor is crucial to winning new clients and keeping existing ones. This ability to win over new clients by having a good reputation in the market is a strong long-term incentive because, as stated, it dominates the compensation scheme with a fixed percentage over the total assets under management.

Although concern over their reputation drives advisors to do their utmost in providing their services, it can also have distorting effects when these specialists invest in portfolios similar to those of their competitors or with little deviation from the benchmark index so as not to endanger their reputation if an investment strategy fails.

In conclusion, while clients know that there are conflicts of interest in this field, as elsewhere, what is important is that the advisor disclose potential conflicts and that contracts, structures and mechanisms are defined in order to mitigate and resolve them in such a way that the interests of the client are taken into account and value is created?

Bibliographic references

Ang, Andrew (2014). Asset Management, Oxford University Press.

Stracca, Livio (2005). “Delegated Portfolio Management: a Survey of the Theoretical Literature”. Working Paper Series No.520, European Central Bank.

Chevalier, Judith A., Ellison, Glenn D. (1995). “Risk Taking by Mutual Funds as a Response to Incentives”. Working Paper No. 5234 National Bureau of Economic Research.

Ley del Mercado de Valores del 30 de diciembre de 2005. Current text with the latest revision published on January 10, 2014.

Language and Culture in the Interpretation of the IFRS

Ceci — Wed, 05 Aug 2015 17:27:49 +0000

By: Yanira Petrides, Instituto Tecnológico Autónomo de México
Esperanza Huerta, San Jose State University
Gary Braun, University of Texas at El Paso

International Financial Reporting Standards (IFRS) are technical standards that guide the activity of a professional accountant in the preparation of a company’s financial statements.

These rules are issued in English by the International Accounting Standards Board (IASB). Even with an official translation of the international standards to other languages, the international financial reporting standard 1 (IFRS1) states that the official language for the interpretation of IFRS is English.

The goal of having an official language is that the intent of the original standard is followed and that the standard is not interpreted differently. It is important that accountants interpret the standards in the same way so that the objective of comparability of financial statements is met. When a rule is interpreted in different ways, the financial statements are not comparable; i.e. the comparability of financial statements depends not only on having common standards, but also on having the standards interpreted in the same way. For example, in the United States, the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) have indicated that, in the convergence of standards, comparability is an important objective.

Although the international standards are issued and published in English, the IASB allows their translation into other languages, provided that the official procedure is followed. This procedure requires a review by expert translators and by a committee of expert accountants in the language into which the standard is translated. The translation is supervised by the IFRS Foundation to ensure uniformity. Only one official translation is authorized and published for each language, because multiple translations could decrease the comparability and transparency of the financial statements.

However, a 2002 survey indicates that professional accountants translate the official English version into their normal working language. But without a systematic method to translate the accounting standards, the translation could change the meaning and the interpretation of the original standard in English.

When translating accounting standards, it should be taken into account that the standards include both technical and generic terminology. Technical terminology includes words or phrases that have a specific meaning in accounting, that is, accounting vocabulary such as “asset” or “liability.” Generic terminology includes words or phrases that are commonly used, such as “likely” or “remote.”

The terminology of the natural sciences is extremely precise. In contrast, social sciences rely more on generic phrases. Although accounting has always used terminology and specialized vocabulary, it also uses generic phrases. Technical terms are easier to translate and depend less on the culture. For example, the English term “asset” translates directly into Spanish as “activo.”

Generic terminology is more difficult to express in another language. There are studies that show that certain words are not easy to translate or have no equivalent in other languages. When a term in the source language has no equivalent in the target language, people translate it with the closest word(s) they can find. The imprecision in this translation process may cause the exact desired meaning in the source language to be lost.

Thus, while the issuer of the international standard has a concept in mind in English, this concept may not be translated in the same way into other languages. The result is that the same concept in English may be translated with different words in another language, which could lead to different interpretations of the standard. Therefore, the accuracy in the translation is an element as important as the standard itself. With a clear and accurate translation is possible to avoid phrases leading to various interpretations that would in turn make more difficult the comparability of financial information worldwide.

The translation of accounting norms is even more important when using principle-based standards, such as IFRS. Principle-based standards, unlike rule-based standards, give general principles of implementation. Accountants should use their professional judgment to interpret the general principle to a particular situation. For example, the accounting standard for revenue recognition indicates in a general way that one of the requirements to recognize revenue is that the revenue is more likely to occur than not. Accountants must exercise their professional judgment to determine, in a particular case, whether the revenue is more likely to occur than not.

The use of professional judgment to interpret the standards impacts the resulting financial information. For example, international standard 37, which regulates the recognition of contingent assets, uses the generic English word “practicable,” which is translated into Spanish as “prácticamente seguro” (almost certain). Thus, it is crucial that the IASB or local accounting organizations identify the generic phrases that can lead to differences in translation to guide the accountants on the correct interpretation.

Studies conducted in various countries found that generic phrases vary in their translation, because of the language and the cultural interpretation that is made of them. These differences in translation not only occur between countries, but also within the same country. For example, in Canada, Davidson and Chrisman (1993, 1994) found differences in the interpretation of generic phrases that reflect expressions of uncertainty (for example, “probable” or “uncertain”) in the International Accounting Standards and the Canadian Accounting Standards. In addition, they found that Canadian students understood the word “uncertainty” in a different way when they were speaking in French or in English. Several studies have noted and shown that differences in translation and interpretation can lead to problems that are detrimental to the comparability of financial statements. Therefore, a greater understanding of the sources and nature of these differences will help regulatory agencies to mitigate this threat.

Baskerville and Evans (2011) recommend to the standard issuing bodies and to the regulators to be aware of the difficulties in translating generic words and to take these words into account starting from the drafting stage of the norm. They explained that the interpretation of accounting standards not only depends on the technical capacity and professional experience of the accountant, but also on the language used to convey the standard and the generic language, which is a barrier for the harmonization of the accounting norms. When using generic language, the same rule can be interpreted in different ways, which ultimately causes differences in the figures reported in the financial statements.

The culture associated with the language also plays an important role in translations. A field that has gained attention is the study of the influence of culture on the interpretation of expressions of uncertainty, which often appear in accounting standards. The local culture may prevent accounting standards from being applied uniformly in all cultures when dealing with this type of expressions.

Languages can be classified as “high context” or “low context.” Hall (1976) argues that written communication in low-context languages tends to be more explicit; the content of the message is understood in a direct way because words have specific meanings. In high-context languages, written communication is less explicit; the content of the message is understood by both the words and the context in which they are used – that is to say, in high-context languages important aspects of the message are understood implicitly.

ranslating low-context languages into high-context languages poses the additional difficulty of ensuring that the message in the high-context language represents the original intention expressed in the low-context language. That is why the accurate translation of the international standards into Spanish is a challenge. English –the original language of the international standards– is a low-context language while Spanish is a high-context language.

The effect of context on the language used in the accounting standards is important for accountants who use a language other than English in their work. At least, they should be aware of the potential impact that the variation in the translation of key terminology for accounting standards could have on the decisions they make in the preparation of financial statements. In addition, accountants need to review and assess the changes in the regulations?.

References:

Baskerville, R., y L. Evans (2011). The darkening glass: Issues for translation of IFRS. Edimburgo: The Institute of Chartered Accountants of Scotland.

BDO, Deloitte Touche Tohmatsu, Ernst and Young, Grant Thornton, KPMG and Pricewaterhouse Coopers (2003). GAAP Convergence 2002: A survey of national efforts to promote and achieve convergence with International Financial Reporting Standards (investigador: D. L. Street).

Davidson, R. A., y H.H. Chrisman (1994). “Translations of uncertainty expressions in Canadian accounting and auditing standards”. Journal of International Accounting, Auditing and Taxation, 3(2), 187-203.

Doupnik, T. S. y E.L. Riccio (2006). “The influence of conservatism and secrecy on the Interpretation of verbal probability expressions in the Anglo and Latin cultural areas”. The International Journal of Accounting, 41(3), 237-261.

Doupnik, T. S., y M. Richter (2003). “Interpretation of uncertainty expressions: A cross-national study”. Accounting, Organizations and Society, 28(1), 15-35.

Doupnik, T. S. y M. Richter (2004). “The impact of culture on the interpretation of ‘in context’ verbal probability expressions”. Journal of International Accounting Research, 3(1), 1-20.

Hall, E. T. (1976). Beyond culture. Garden City: Anchor Press.

Huerta, Petrides y Braun, 2013, “Translation of IFRS: Language as a barrier to comparability”. Research in Accounting Regulation, 25(1), 1-12.

The GEM Survey and Entrepreneurship in Mexico

Ceci — Wed, 05 Aug 2015 17:15:06 +0000

By: Claudia N. González
ITAM

Entrepreneurs who create and grow businesses enjoy social recognition and appreciation.

They are models of leaders who are charismatic, adventurous, persevering and determined. In general, they are seen as people who are essential for generating new jobs and increasing productivity, factors that are critical for economic growth. However, there is a tendency to praise them rather than actually study them.

In recent decades, interest in getting to know and understand entrepreneurship has grown significantly. However, two important limitations in the research on this subject are the lack of empirical data and the lack of units of measurement regarding entrepreneurship. To address these limitations, the Global Entrepreneurship Monitor (GEM) was started in 1999. The GEM is an international academic project that measures, through the use of a survey, the extent to which individuals participate in entrepreneurial activities in a country and the interdependence between entrepreneurship and economic development. Throughout these years, the survey has refined its conceptual framework and basic definitions in order to have greater clarity about the paradigm and the effects of the endeavor.

The GEM is composed of three main indicators of entrepreneurship in the economy of a country. The first refers to the group of early stage entrepreneurial activity (Total Early-stage Entrepreneurship Activity, TEA), which is an indicator of the percentage of individuals between 18 and 64 years of age who are beginning entrepreneurs, that is, entrepreneurs with businesses established less than three months before, or owners or managers of a new business that is less than 3.5 years old. This indicator is enriched with individual attributes such as sex, age and the motivation to create the business – which may be because an opportunity was detected or out of a need to start up a business due to a lack of work. It is also possible to identify the sector and the impact, considering business growth, innovation and internationalization.

The second main indicator is the entrepreneurial activity of the employees (Entrepreneurial Employee Activity, EEA), which is the level of employee participation in entrepreneurial activities, such as the development or launching of new products or services, and the opening of new business units, establishments and subsidiaries.

Finally, the third indicator refers to the Social Entrepreneurial Activity (SEA) and measures the number of individuals engaged in entrepreneurial activities with a social purpose.

Other important indicators of the GEM refer to how much entrepreneurs are valued in society and the individual attributes of entrepreneurs.

Recently, the GEM 2014 Report, with the participation of 73 countries representing 72.4% of the population and 90% of the global gross domestic product, was presented in Mexico.

The results of the report allow opportunities to be identified. For example, in the category of “Values of the Entrepreneur,” Mexico ranks 16th of 17 countries in Latin America in terms of media attention to entrepreneurs, just above Belize. Mexico is also in the penultimate place in Latin America when entrepreneurship is measured as a good career choice. Worse still, Mexico ranks last in Latin America when measuring social appreciation of successful entrepreneurs in a country. Therefore, there is no doubt that entrepreneurship needs to be reassessed in our society.

The media would do well to show inspiring stories of successful Mexican entrepreneurs who work diligently and have managed to create businesses, growing them and turning them into models of success. There are many stories of this kind, yet few people know them and it seems that the only entrepreneurs who we admire are those from other countries.

Various global organizations that promote entrepreneurship recommend that young people have role models, that is, people who are examples to follow and who encourage them to opt for entrepreneurship. But if those people do not know one another or seem distant, the inspirational effect will not occur.

The low valuation given to entrepreneurship in our society is one of the reasons why Mexico ranks 14th out of 19 Latin American countries analyzed by the GEM in intention to start a business, in spite of the fact that in opportunities perceived it is in 9th place. This means that we realize that there is much to do in our country, but there is a lack of interest to create businesses that meet those needs and monetize business opportunities.

Part of the explication lies in the huge fear of failure that prevails in Mexican society. Our country occupies the 9th position in this measurement. In addition, Mexico ranks 17th out of 19 Latin American countries when measuring confidence in our entrepreneurial skills. It is a remarkable contradiction considering that we occupy 7th place in education for entrepreneurship in primary and secondary schools, and fourth place in higher education.

Without a doubt, there are things we are not doing well. Those of us who are dedicated to the education and motivation of future entrepreneurs are failing to convince them that it is an excellent choice for personal development or that they have the necessary skills to change the direction of the country’s economy. Apparently we have not explained that more is learned from an initial failure than from premature success and that it is simply a matter of not losing enthusiasm.

An interesting fact is that in the area of national research and development, leading to new business opportunities, Mexico ranks third among Latin American countries. However, there are few examples of companies that have emerged from the universities of our country, and there is also little evidence of a demand for knowledge among the business sector.

The importance that the government has given entrepreneurship is reflected in the indicator of presence and quality of government entrepreneurial programs, in which Mexico ranks sixth in Latin America. Among the most important initiatives highlighted is the creation of the National Institute of Entrepreneurship in 2013, whose mission was to redesign the mechanisms to support micro, small and medium-sized enterprises (MSMEs) and to coordinate the entrepreneurial ecosystem as a whole, from financial services to the entrepreneurial culture, as well as the Conacyt programs that support the different stages of development of innovative entrepreneurs: from training personnel to initiatives to foster innovation in established companies.

Figure 1. Government programs of support. Source: National Innovation Program, 2011.

Those of us in the entrepreneurial ecosystem of our country have much to do. We need to redouble our efforts to create the necessary conditions so that more Mexicans innovate and start businesses that flourish and become multinationals. It is not only about improving the indicators of the GEM, but to have a good number of companies that grow, employ a skilled work force, and together contribute to raising the gross domestic product of our country.

Figure 2. Entrepreneurial ecosystem of Mexico..

References

Singer, S., JE Amorós y D. Moska. 2015, Global Entrepreneurship Monitor 2014 Global Report, Londres.
Intersectoral Committee for Innovation, National Program of Innovation 2011, Mexico.

The Art of Making Bad Decisions and Getting Good Outcomes

Ceci — Wed, 05 Aug 2015 17:14:17 +0000

By: Luis V. Montiel

During our lives we learn to consider most activities as common skills. It is unlikely that one day, without any reason, we start questioning activities such as getting dressed, making breakfast or driving.

However, among these seemingly trivial activities, there are some that have relevant consequences. Making decisions is one of them.

Before learning to walk, we experimented with decisions about our tastes, interests and risks. For example, a baby’s first steps are the result of the decision to overcome fear for the sake of curiosity. By the time we become teens, despite our poor judgment, we have accumulated more than 10 years of experience as decision-makers, and on the day we get our first job, making decisions is an act as natural as walking.

Despite of being a seemingly common activity, the corporate world reserves their best positions for those individuals who, given their decision-making abilities, produce the best outcomes, either higher earnings or some other reward. However, it is worthwhile to note the following: If companies value their employees by the outcomes of their decisions, is it possible to make bad decisions that generate good outcomes?

Although the answer may seem trivial, it is surprising the number of qualified entrepreneurs and directors who lack the resources to answer the question. In spite of its importance, the decision-making process is seen as an activity that just happens, as natural as breathing and rarely questioned. Furthermore, there is a false belief that the best managers have an innate intuition for making good decisions, without considering that deciding, unlike breathing, is an activity that can be perfected with a deep understanding based on analysis.

So I ask again, can bad decisions bring good outcomes? It is possible that the reader may begin to doubt whether his/her first answer was correct. Not to prolong the uncertainty, it is important to say that it is not only possible, but it is common to observe bad decisions that yield good outcomes in both public and private sectors. However, although the answer is a resounding yes, it is more important to understand why a decision is correct or not, and to do this, let us take a small game as an example. The game has only one rule: Each question must be answered clearly and in a direct manner, so that words like “it depends” are not allowed. The game begins with the following question: Is it a good decision or bad decision to buy a lottery ticket? As innocent as the question sounds, many will be tempted to say that it depends. However, the game is about thinking and taking a stand. If an employee buys a lottery ticket, would you say that she/he made a good decision or a bad decision? Record your answer and continue. After the day of the drawing, you find out that the ticket won the first prize. With this information, you answer the next question: Was it a bad decision or a good decision to buy the lottery ticket? It is a common reaction for people to change their minds about the decision in the second question. Finally, let us say there was a mistake and the ticket in reality did not win any prize. With this information, answer: Was it a bad decision or a good decision to buy a lottery ticket?

At this point, most readers will have changed their mind at least once about buying lottery tickets, even though the decision is the same, to buy or not to buy a lottery ticket. It should be noted that the context of the decision was never changed; I only provide information about the outcome. That is to say, if we define the quality of a decision based on the outcome, we would say that decisions that produce good outcomes are good decisions. So can a bad decision generate good outcome? If the reader is inclined to answer no, I would remind you that the correct answer is a resounding yes, although it certainly is not the most popular response among managers and academics in the business world.

This mistake is generated by everyday inertia. Since childhood we learn by impulse and response; and learn to relate decisions and outcomes as if they were the same. But this confusion is the cause of many of the biggest mistakes in the world of management. For example, if we evaluate our employees based on the outcome of a strategic decision made today, we will not be able to evaluate such decision until the outcome is revealed. The decision will be the worst and best decision at the time the decision is made, which leaves entrepreneurs and employees with two alternatives. The first one is to avoid bad outcomes at all costs, which means sacrificing risky projects that could bring real competitive advantages. The second one is to study clairvoyance.

A particular problem cause by the confusion between decisions and outcomes is the creation of a culture of fear. For example, Palm, Microsoft and BlackBerry strongly criticized the launch of the first iPhone in 2007, even though the technology necessary to create smartphones existed since 2002, this delay was caused by corporation’s fear of failure. Eight years later, Palm is now out of the market, Microsoft is trying to enter and BlackBerry has lost the leadership of the sector. A more recent example is that of Tesla Motors, which in 2012 shock the markets with an electric car. GM could have been the leader of the electric cars market if it had not cancelled the production of the EV1 in the 1990s. In Mexico, perhaps the most compelling example is Aurrera, which, when facing the risk of competition withdrew from the market giving way to Wal-Mart. The decisions of entrepreneurs like Steve Jobs and Elon Musk were good not because they generated good outcomes. Lisa was one of the greatest failures of Apple and SpaceX (the sister company of Tesla Motors) has failed to date to land a single reusable rocket. However, we can consider these decisions as good if we ask ourselves seriously what makes a decision good or bad.

Similarly, evaluating managers based on their outcomes — as if outcomes and decisions were the same — generates an unfair compensation scheme where incompetent-lucky individuals rise to management positions. This explains why so many employees complain about their bosses’ limited skills. We can illustrate this with a simple example: Assume a brokerage house with a thousand brokers with equal abilities. The company has decided to promote each year those whose portfolio shows no losses. Given the nature of the markets, it is expected that a random percentage (say 50%) of the brokers have a bad year. At the beginning of the second year 500 brokers will have been promoted, and at the beginning of the third year 250 will receive a second promotion. After 10 years, we would have two brokers as stars, even though they all have the same skills. Real life is even tougher, as unskilled workers take fewer risks in order to cling the corporate ladder and wait for a stroke of luck to move up. This scheme is frustrating for employees and it is inefficient for corporations in terms of their management team.

Now, if a bad decision can produce a good outcome, and a good decision can produce a bad outcome, how can we determine what makes a good or a bad decision? To answer this question we need to understand what is a decision and what are its components. In the remainder of this article, I will focus on difficult or important decisions, although trivial decisions such as deciding where to diner share the same elements but do not require rigorous analysis.

We define a decision as “An irrevocable allocation of resources.” A decision is reached when there is no turning back and our resources have been committed. In the business world, the most common resource is money, however depending on the problem; we can speak of other resources such as time, health, etc. Under this definition, decisions have three main components: alternatives, uncertainties and information. The lack of alternatives leaves us incapable to act, the lack of uncertainties is a utopia that leads to a trivial choice about preferences and the lack of information is a trivial gamble.

With these ideas, we can establish that a good decision is one that focuses on strengthening the weak points of its components. For example, readers may ask if during the last important decision at work, a formal procedure was followed to determine whether the alternatives considered were adequate or not. In practice, it is common to consider alternatives that do not resolve the main problem. However, the worst thing is to make a decision without devoting enough time to identify new alternatives. The most interesting alternatives are not easy to find and require intense work. Hence, a decision with bad alternatives will be a bad decision.

Of the three components (alternatives, uncertainties and information), the analysis of uncertainties is perhaps the most interesting and the most technical. In this case, a good decision is one that can identify and describe clearly what the relevant uncertainties are and discard those that have a trivial effect on the final outcome. A large scientific community works on various methods to improve the decision-making process using a wide variety of mathematical models such as: Estimation of empirical probabilities, approximations to joint distributions, optimization under uncertainty, preference analysis, assessment of risk attitudes, sensitivity analysis, among others; the models and tools developed in this area are the difference between making a bad decision and being lucky or making a good decision and generating the highest possible value for the organization. Clearly you do not have to be a mathematician to make good decisions, but to know and use tools that can help to understand the behavior of the uncertainties is essential in a decision of quality¹.

Finally, a good decision is one that has enough information about the problem, the uncertainties, and the preferences of the decision maker. It is essential to understand that a decision made with the information at hand is most likely a decision of low quality. It is the responsibility of decision maker to seek the information that is required and not simply to use what is available. We must understand that to make a decision of quality it is required to leave behind phrases like “paralysis by analysis,” which serve as an excuse for making hasty decisions with insufficient and low-quality information. It is the decision itself and the facilitator that determines when there is enough information to allow us to make a good decision.

Although decision-making seems to be common activity, it can be quite complex and technical. For example, in companies like Chevron Corporation there are entire departments dedicated to implementing iterative procedures for making multimillion-dollar decisions. In U.S. hospitals it is common for facilitators to help patients and doctors make high-risk decisions. Even in sports, films like Moneyball give us proof of the power of the decision-making models in practice.

Decision-making is too broad a topic to be cover in such a small space. However, it is crucial that Mexican industrialists, businesspersons, entrepreneurs and academics participate in this discussion and start questioning traditional concepts. Many of the major economic and social problems of Mexico were generated by decisions made with little information, few alternatives and without thinking about the possible effects of the uncertainties. If we want to solve the current problems to improve our quality of life, we need to stop making bad decisions that produce the known typical outcomes and start making good decisions, although sometimes the outcomes may not be as expected?

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¹ Readers who are interested can visit www.informs.org/Community/DAS for more information on the latest advances in the field.

Improve strategic planning through management flight simulators

Ceci — Wed, 05 Aug 2015 17:13:50 +0000

By: Rogerio Domenge y Daniela Vidal

Deficient strategic planning in modern enterprises prevents the medium and long-term expectations of its managers from materializing.

For example, according to a survey by Domenge and Belausteguigoitia (2009), one of the main problems that SMEs face in Mexico are poorly designed strategies for obtaining any relatively sustainable competitive advantage in terms of investing or allocating their limited financial resources in the best way. These strategies, by their own general nature, should identify and evaluate the key strategic resources (human, technological, operational, marketing and financial) that the company requires to achieve its objectives, as well as the means to obtain them, either by developing or accumulating them in a complementary and balanced manner (Warren, 2008).

Roughly speaking, a company’s traditional strategic planning consists of four major stages: the external analysis, the internal analysis, the design of the strategy and the implementation plan for the strategy. The external analysis determines the vision of the company in a competitive or challenging environment, and defines how the company wants to be seen in the future, which identifies the strategic objectives. An internal analysis of the resources notes and evaluates the assets and capabilities of the company and those that are missing to achieve its strategic objectives. The design of the strategy results in a path or way to achieve the strategic objectives. Finally, the implementation plan refers to the set of tactical or short-term decisions that, when carried out, will enable it to advance toward the materialization of the strategy from which they were derived.

How do strategists determine or select the best strategy? How do they evaluate the proposed strategies? Is it possible to validate and calibrate the strategy before putting it into action?

The Traditional Approach

Generally, the design of the strategy is based on a number of hypotheses that assume that certain decisions and actions will achieve the desired objectives at a certain time, within the constraints of scenarios that pose realistic assumptions or the most likely of the environment. In most cases, these hypotheses are based on the subjective postulation of causal relationships between the company’s resources and its expected effects, based on the experience of the strategists and supported, perhaps, by an analysis or a linear impact assessment model of the input -> output (IO) type (Figure 1), held in a computer spreadsheet program, which usually considers only measures of financial performance such as the pro-forma financial statements, expected cash flows, financial reasons, net present value and internal rate of return.

Figure 1. Traditional linear IO impact assessment model

These models for the assessment of the causal impacts of decisions on the resources of the company and their expected effects are conceptualized or developed according to a linear view of decisions to effects or performance measures, considering that in these models the effects do not have an influence on decisions in the planning horizon and if it is intended to factorize some undesirable effect, another assessment (or computer run count) must be made, taking into account the previous results in the new decisions.

The learning organization and the interactive learning environment

Poor strategic planning has been one of the main reasons for failure of the small and medium-sized enterprises, since it is generally considered a requirement and not a learning tool. In the approach to learning in the organization (Seng, 1990; Morecroft and Sterman, 1994; Spector and Davidsen, 2006), to design business strategies, the mental models of the strategists are called into question or the ways in which they see and understand the dynamics of the company, by means of new informed visions of the likely scenarios that would result from current decisions.

In recent years, there has been an increase in the tendency to do strategic planning and specifically plans of (new) companies, because, among other reasons, it is a requirement to persuade the directors, to apply for credit or invite equity partners. In many cases, you end up with a static document that is a compilation of data and that does not allow entrepreneurs to understand the structure of the dynamic system in which the company operates (Bianchi et al., 1998). Strategic planning in the context of learning empowers strategists to anticipate future scenarios for company growth and, therefore, understand the time needed to obtain or develop the resources necessary for the company to move toward its strategic objectives.

Learning necessarily involves the concept of feedback. Decisions are made that affect the actual results reflected in the performance measures. With these results, decisions made to achieve the objectives are reviewed and corrected (Sterman, 2000). These objectives, in turn, can be modified and adapted to the dynamics of the company environment, following the idea of resilience of the company.

The relationships between the strategic resources that the strategist has, his strategic objectives and his development strategy are the foundations of management flight simulators (MFS) that serve him at the time of designing, evaluating and predicting the potential performance of his strategy. Planning can be seen as a practical means of learning and the MFS as the vehicle that supports and enhances the understanding of the business system (Bianchi et al., 1998). High competitive levels and market demands force the strategists to be more prepared and to acquire greater knowledge to address today’s business challenges. Because the modern enterprise must be constantly learning and growing, the MFS provide a means of sensitizing entrepreneurs through an immediate feedback on the impact of their strategies, in order to analyze the impact their decisions might have on the organization’s resources.

The interactive learning environments (ILE) are means to achieve learning goals through the interaction of the participant and the focal system (Domenge, 2009). In particular, the MFS are a type of ILE designed for use on the computer, in the form of an interactive game based on virtual simulators of real systems. The MFS use a user-friendly interface for the decision maker.

The MFS are any representation of an environment, or a real or imaginary system, in a computerized simulation model (Davidsen, 2000). A simulator is designed and used when there are impediments to experimenting directly with the real system, such as cost, time, risk or lack of access to resources. The MFS are a means of learning in entrepreneurship education and practice or experimentation spaces for decision makers (Figure 2). With these means, an effective learning cycle is created, since they close the gap between the design and implementation of strategies and their effects.

Figure 2. The role of MFS in the strategy

With the MFS, learning occurs in a double loop in which the feedback from the information (results) stimulates changes in the mental models. Learning involves new concepts of a situation and leads to new objectives and decision rules, and not only to new decisions (Sterman, 2000; Lane, 1995). With the learning of two cycles, the decision makers assess the consistencies of their mental models, as one of the most important risks is making decisions without having examined the consistency of the mental model (Bianchi et al., 1998).

The MFS are an effective model of learning various aspects of business and are also one of the most interesting, as they lead users to engage with their decisions, as they progress through the interactive use of the simulator, since they review results immediately, accelerate their learning and gain experience quickly, experiment new behaviors, and acquire certain skills and competencies related to decision making (Saad, 2013; Lane, 1995). The simulator facilitates learning because it allows you to review and evaluate various strategies in a constant, immediate and iterative manner and to make decisions in light of new information generated by the simulator itself in a series of scenarios or iterations.

The MFS open the possibility of articulating knowledge from different areas of a business; they produce a strong motivation to undertake active learning; combine strategic and analytical thinking, and strengthen the ability to work as a team and improve personal communication and work under pressure. Simulation learning improves the mental models of the participants and helps them to form a shared vision of reality (Bianchi, et al., 1998).

However, the MFS also have some disadvantages. For example, a simulator is a model of reality, that is, it makes certain simplifications beginning with a selective abstraction of the real system. In addition, as the decisions are made without any responsibility –because the results of the simulator do not affect reality– they may influence the behavior of the players.

The bibliography related to MFS addresses issues that have served to formulate and evaluate strategies for a particular business or businesses in general (among others, Saad, 2013; Bianchi et al., 2000; Threshold Entrepreneur; The Business Disc; GoVenture; VCommerce; Venture; Enttrepreneur; DEAL; Corporation; Vensim; EnRoads; CRoads; Der RÜTLI Management-Simulator; Millenium Institute).

Conclusions

Modern business dynamics are complex. Entrepreneurs evaluate their strategies according to the results they obtained as their strategy progresses. Thanks to MFS, strategists can develop more efficient strategic planning by identifying and analyzing the main recourses that are available and by evaluating the gap between the objectives and the results of the simulations.

With the MFS, the company is considered to be dynamic, accumulating resources over time and modifying and evaluating various strategies, as the participant understands its structure and function. By articulating all the areas of the company, the MFS open the possibility of changing the mental model of strategists so that they have a general overview, which can also serve as an interactive method for themselves and others responsible for strategic planning.

With the MFS, the strategist intends to adhere to the following points:

Develop an explicit mental model for the dynamic development of the company, which is used and continually reformulated in strategic planning.

Identify and analyze the resources required for the strategic development of a company and to achieve the strategic objectives.

Map and evaluate various strategies, analyzing their impact on the performance measures considered in the model.

Propose a strategy that takes into account the investment and the balanced development of the company’s resources.

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References

Bianchi, C., E. Bivona y F. Landriscina (2000). Promoting entreprenership thorugh open-distance-learning management flight simulators EcoRoll Educational Package. International System Dynamics Conference. Bergen.

Bianchi, C., G. Winch, y Grey, C. (1998). The business plan as a learning-oriented tool for small/medium enterprises: A business simulation approach. International System Dynamics Conference. Quebec.

Davidsen, P. (2000). “Issues in the design and use of system-dynamics-based interactive learning environments”. Simulation Gaming, 31, 170-177.

Domenge, R. (2009). “Importancia de los factores de transferencia de contenido en una escuela de negocios: percepciones de estudiantes y profesores”. Cuadernos de Estudios Empresariales, 19, 75-104.

Domenge, R. e I. Belausteguigoitia (2009). “Nuevas pymes, problemas y recomendaciones”. Dirección Estratégica, 29(8), 25-27.

Lane, D. (1995). “On a resurgence of management simulations and games”. The Journal of the Operational Research Society, 46, 604-625.

Morecroft, J.D.W. y J. Sterman (comps.) (1994). Modeling for learning organizations. Nueva York: Productivity Press.

Saad, F. (2013). Modeling and comparing a startup dynamics in the US and Egypt. System Dynamics Society Conference. Massachusetts.

Senge, P. (1990). The fifth discipline: The art and practice of the learning organization. Nueva York: Doubleday.

Spector, J.M. y P. Davidsen (2006). “How can organizational learning be modeled and measured?” Evaluation and Program Planning, 29, 63-69.

Sterman, J. (2000). Business dynamics: Systems thinking and modeling for a complex world. Boston: McGraw-Hill.

Warren, K. (2008). Strategic Management Dynamics. Chichester: John Wiley and Sons.